The bull in me has taken its leave. The domestic economic situation in Zimbabwe is beyond dire. Structural unemployment (approx 90%) and non-existent growth (1-2% likely to be revised down) are the consequences of economic mismanagement and lack of policy formation. With 3 cabinet reshuffles in 9 months, and almost $200mln (of a $3.1bln budget) being spent on the president’s office since the beginning of the year combined with wages at 80% of expenditure, it’s a wonder that there are some who are looking past the risk and still investing in Zimbabwe. In my recent trip I even came across samples of illiterate teenagers, these are the reverberations of the ‘lost decade’ (reference to the years of farm invasions and hyper inflation) whom the government has entirely failed to empower through insufficient educational policy. Gone is the status of highest education standards on the continent, O’level and A’level pass rates are a mere 20% and 10% respectively (down from 90% in 2000). One NGO doctor told our group that infant mortality rates in Zimbabwe are the highest “outside a conflict zone “, approximated at around 20%. One in five kids fail to reach the age of one.
So who is to blame for the extended economic trough that Zimbabwe is in? Simply answered, the government. The state treasury issues short term securities, to accommodate its own spending, which sucks out dollars from the economy, this would explain rampant deflation (-2.6%) even the listed beverage blue-chip Delta has had to slash its prices by almost 25% as cash dries up. The funds accrued from taxes are turned over immediately to the civil service leaving little to actually implement policy initiatives that provide the foundation for growth and employment. The government’s external debt ($9bln) is too high for the country to service especially as dollarisation erodes competitiveness. As long as Mugabe is in power, debt forgiveness on the whole is not a fathomable outcome, though it is one of few effective options for ending the rot – rescheduling in my view will do nothing and permit more graft. The country has recently seen some funds from the Eurozone and African Development bank and China keeps making promises, but these won’t make a dent on the country’s outstanding liabilities. Zimbabwe has very few exports to speak of except platinum, gold, and tobacco – the diamond opportunity for now is lost, failing to raise the capex needed to dig deeper and extend mine life and production – this means the country’s current account deficit at 23% of GDP cannot be overcome. The country imports most industrial inputs as well consumer staples, erstwhile the land toils through another drought. To add insult to injury the low levels in the Kariba dam mean electrical production is non-normal and more than half of every week in recent months is spent in darkness, which will likely trigger another downward revision in GDP estimates (Zambia is also suffering from the electrical under-supply).
Dollarisation as is often argued was a short-term gift and a long-term curse – the short term benefits have been reaped, and now the Reserve Bank of Zimbabwe is toothless, as pure demand and supply will determine the inflow/outflow of hard currency – with no ability to set recognizable interest rates, recent dollar strength has added to Zimbabwe’s liquidity woes (compounded by falls in commodity prices). But in an effort to survive, either through brilliant delinquency or just a complete lack of options, the government has found a way to increase the supply of a ‘money’ they do not own. In striking similarity to Nigeria’s action in defending its banking industry in 2008/9, the RBZ set up ZAMCO (Zimbabwe Asset Management Company), its purpose to buy the bad loans using T-Bills…these are denominated in US Dollars as opposed Naira! By issuing T-Bills the government has been effectively printing US Dollar money and currently the total value issued sits at around U$1.2bln (10% of GDP). A perspective is that the government has mortgaged Zimbabwe’s future. Add municipality and parastatal debt mainly owed to banks, that number balloons – anyone will tell you that the higher the debt to GDP ratio the sharper the fall in output growth…and so perpetuating Zimbabwe’s demise.
The country has no capacity to recover even if it wanted to, and in the present environment you would think this has to force some level of regime change, but the man on the street is over the politics and lives with the corruption and it has tainted the fabric of Zimbabwean society. The proliferation of mobile technology has provided some gains from a social context – but not enough to set the country on a new path. Mugabe may move on but still then succession is far from clear, there is no trust and an untarnished outsider will be the only option for a swift, policy driven recovery. Negotiating terms with the IMF & World Bank in the present economic context is dangerous, because execution will undoubtedly miss its targets as we head toward the next election in 2018 – this will set those relations backward another five years. I would contend the real change for growth has to be driven by both local and foreign elements, a fresh regime is needed that builds a competent and actionable government which is actually interested in the welfare of the people it represents – I reiterate that debt forgiveness, an injection of cash through FDI, are the only way Zimbabwe emerges from a dust that has settled and now hardened….but you already know that.